Know
more about the 4 different types of bankruptcy
Bankruptcy is essentially a legal proceeding which involves
either a person or business that isn’t able to repay outstanding debts. It
offers an individual or business the opportunity to start afresh with debts
being forgiven. It also offers the creditors some chance to obtain a certain
measure of repayment based on the available assets. Theoretically speaking,
bankruptcy is supposed to benefit the overall economy as well.
The
different types of bankruptcy
The bankruptcy filings in the United States essentially falls
under 4 categories. Read on
to find out more.
1.
Chapter
7: This chapter essentially deals with a bankruptcy proceeding
wherein a company stops all operations and generally goes completely out of
business. There’s a trustee appointed for liquidating or selling off the
company’s assets or in the case of an individual, his or her assets, and the
money generated from this sale is used to pay off debts. As for the payments,
then those investors who’ve taken the least risk are paid off first. This is
one such phenomenon which is known as “absolute priority”.
2.
Chapter
11: This is a form of bankruptcy that essentially involves
reorganizing a debtor’s business affairs plus assets. This particular
bankruptcy is generally filed by corporations that mostly require time for
reshuffling their debts. This is perhaps the most complex of all bankruptcy
cases as well as the most expensive one. Experts are of the opinion that this
particular case should only be considered after a lot of careful analysis and
exploration of all other possible alternatives.
3.
Chapter
12: This particular chapter deals particularly with family farms
or fisheries. This US bankruptcy proceeding endows the farm or fishery owner
the ability to restructure his or her finances and debts while still being able
to keep the farm or fishery. In this proceeding, the farm or fishery owner has
to work with a bankruptcy trustee and his or her creditors to formulate a
payment plan that’ll meet his or her own financial obligations.
4.
Chapter
13: This chapter deals with a US bankruptcy proceeding wherein the
debtor takes on a reorganization of his or her finances under the supervision
and the approval of the courts. The debtor also needs to submit a plan which he
or she must compulsorily follow through. This would essentially involve a pay
back plan wherein the debtor has to pay back his or her creditors the outstanding
debt within a time span of 3 to 5 years. If required, then this can use cent
per cent of the debtor’s income.
If you’re considering filing bankruptcy, then it always helps
to gather knowledge about the entire process. This always gives you an easy start
which is more than welcome.
